Jan. 10: Notes on repurchases, derogatory credit timelines, niche products, solar panel lending, and what the CFPB needs

Rob Chrisman

Rob Chrisman began his career in mortgage banking – primarily capital markets – 31 years ago in 1985 with First California Mortgage, assisting in Secondary Marketing until 1988, when he joined Tuttle & Co., a leading mortgage pipeline risk management firm. He was an account manager and partner at Tuttle & Co. until 1996, when he moved to Scotland with his family for 9 months. Read more...

Repurchases are still with us – but buyback requests from Fannie & Freddie and other investors just aren’t making news anymore. Yet they are a daily fact of life for lenders. From West of the Mississippi I received, “Wouldn’t it be interesting for people to post their most unreasonable examples of repurchase requests for current business? Fannie/Freddie like people to think they were forced to act in an unreasonable manner with respect to legacy business but I think most originators would tell you they are displaying some of the same tactics for current business as for legacy business. While the Fannie/Freddie/FHFA complex has done something positive for loans where the borrower makes at least 36 payments, they are still sending out ridiculous repurchase demands for new business. Maybe you should ask for recent ridiculous examples.”

 

And this note along the same lines, “I still think we have lenders who are gun shy about taking any sort of risks on current business because it seems to me that both Agencies are sending repurchase demands for immaterial defects. I have firsthand experience with those demands as most of that activity is my responsibility. The real question is this: when LOs are telling you about ‘loans they cannot do’, what percentage of those loans are the result of a Refer from an AUS that an underwriter will not traditionally approve for fear of a repurchase demand?”

 

A few weeks ago I published a similar list, but Gus Crivelli, a Senior Account Executive from Sierra Pacific Mortgage, has provided the waiting period requirements for significant derogatory credit events. “The waiting periods are separated into three different categories: Chapter 7 bankruptcy, foreclosure and pre-foreclosure/short sale. For Chapter 7 bankruptcy, the FNMA Conforming and High-Balance loan programs have a 4 year waiting period, along with the FHLMC Conforming and Super Conforming mortgage products. Non-Agency Jumbo Edge up to $2 million has a 5-year waiting period, but those who have filed Chapter 7 bankruptcy are not eligible for Non-Agency Jumbo Classic up to $2 million. For FHA loans less than $625,500 and VA loans less than $700,000, a 2-year waiting period is mandated.

 

“If you have previously foreclosed on a home, the FNMA Conforming and High-Balance loan programs and the FHLMC Conforming and Super Conforming loan programs both have a waiting period of 7 years. The Non-Agency Jumbo Edge up to $2 million has a 7-year waiting period, whereas the Non-Agency Jumbo Classic up to $2 million would not be an eligible product. FHA loans less than $625,500 have a 3-year waiting period and VA loans less than $700,000 have a 2-year waiting period requirement.

 

“Finally, if you have been through a pre-foreclosure or short sale the waiting periods are similar to the Chapter 7 Bankruptcy intervals, with additional requirements. For FNMA Conforming and High-Balance mortgage loans, the waiting period is 4 years with DU approval. For FHLMC Conforming and Super Conforming loans, the waiting period is 4 years with LP approval. Non-Agency Jumbo Edge has a waiting period of 5 years and you would not be eligible for Non-Agency Jumbo Classic loans. For FHA loans less than $625,500 there is a waiting period of 2 years, if you were current on your mortgage and all installment loans at the time of the short sale, otherwise a 3-year waiting period is mandated. Finally, for VA loans less than $700,000 the waiting requirement is 2 years.”

 

Switching gears, Aaron writes, “There is a growing popularity of solar panels. Every other day in our area of Southern California we see solar panels being installed. Although they are popular and cool with the rest of the community, in the real estate and lending community solar panels are becoming a big pain in the ‘neck’. FHA has stated that homes with solar leases and power purchase agreements are in most cases ineligible for FHA insurance. Fannie and Freddie have said that they prohibit loans with PACE or PACE-like programs, which would include the HERO Program. Fannie and Freddie have even threatened to raise the LTV requirement in areas where these programs are offered. I’ve heard that there are companies out there funding these deals despite the risk of having an uninsured loan or an unsellable loan. What have you heard?” [Anyone with any information regarding lenders offering these, or wholesalers/correspondents buying them, let me know.]

 

Turning our gaze to the CFPB, whose prominence grows every year, I received this note. “Rob, we’ve had a few years to look at the CFPB and for the most part the employees I have interacted with are pretty okay folks. But in the building something happens. Yes, most seem to be very young. They think having worked for a regulator or in a law office makes them mortgage experts. I’m willing to bet that less than 3 of the 1000+ at CFPB have ever written a mortgage, and even less have worked for a broker. What the CFPB needs is a Wholesale AE, a smart one that understands both sides of the issues. When a Regulator makes the initial assumption that all actions are done with the intension of defrauding or discriminating against people, we as an industry will continue to retreat until only the most perfect of consumers will be afforded the opportunity to acquire a mortgage. This hammering away with penalties is in itself anti-consumer. Take the new 5% Rule. Where do they think the 5% is going to come from? Increased fees to the consumer, that’s where. Thus less competition. Over time the MBS could wind up with $250-500B in the 5% pool. That’s a third to a half a year’s national mortgage money.

 

“A few years back I saw an article that the net profit for one larger bank, per loan, was about $675. If that were still the fact, they just lost it on the audit review. Do regulators think that companies work for zero profit margins? Every cost has to be passed on to the consumer; wait 3 days for the appraisal, wait 3 days after the HUD is approved, wait here and there. Fine, but they just added how many days to the process, extra people to confirm compliance and worse yet, a longer rate lock. If every 15 extra days were to constitute an additional 1/2 point to the cost of the rate lock, how much do we add to the national cost of mortgage originations, billions?

 

“What the MLOs and consumers cannot fathom are the intrusive delays. Yes, we want informed and educated borrowers. Sy Sims said it best years ago: ‘the best consumer is an educated consumer.’ But to have them sign a Letter of Intent to proceed? Why? They just signed 40+ pages of forms, why for their health? Why wait 3 days for the appraisal? If they didn’t want the appraisal done they wouldn’t have given us the money for the appraisal and then taken 1-2 hours of time out of their lives to complete the application and supplied all of the documentation. These time delays are money costs to everyone. I understand the fraud prevention issues, but the level of redundancy it becoming overwhelming to the industry and the consumer. When a borrower doesn’t want to refinance and save $250 per month because of all the paper work, something is deeply wrong with the system. My favorite was when a lender wanted copies of a Federal Employees Employee 401k handbook to prove they had access to the funds in their 10+ year old 401K.”

 

And while we’re on the Libertarian bent, “The crux of our nation’s problems isn’t the regulations, its Congress’s desire to put everything under independent agencies, leading to no control and as such no liability. Whether it’s the CFPB, the FHFA, the FRB, and on and on. They allow Congress to scream but know they have no meaning. We continue to grow independent agencies. Thank goodness the IRS wasn’t created today. Imagine that as totally independent.”

 

TS sent in: “Hi Rob: Thank you for pointing out the letter the CHLA sent on the CFPB, after working in the banking industry for a year and half before escaping back to the mortgage banking side, I really saw how the ‘registered’ LO is a joke. The continuing education is ridiculous and much of it has nothing to do with originating loans or ethics or any of the requirements that a licensed LO has to take for classes.  Many branch offices designate one person to take all the tests for the LOs (no one on that side will ever admit this of course…) since many would fail.  The CFPB needs to make sure that consumers are being represented by someone in the industry that knows their products, laws and rules and from firsthand experience that is definitely not happening on the bank side. Additionally, when the licensing came to be in my area, the LOs that could not pass the tests or the background checks or credit report checks went to the banks immediately to avoid any of the rigmarole that we have to go through continually.”

 

From the Washington DC area I received, “One of my favorite jokes involves a man going into a bar after a meeting with his attorney.  He was not happy with the results of his meeting and orders a drink. After getting his drink, he mutters to himself, ‘All attorneys are jerks.’ A patron in the bar overhears the disparaging remark and quickly responds by telling the man to watch what he is saying. The man apologizes and says, ‘I am sorry, I did not know you were an attorney.’ The patron says “I am not an attorney, I am a jerk.’”   “The rant about stated loans makes a general statement a SISA, Stated, NINIA, and No Doc loans. The lack of creative or niche products is currently hindering or hurting the industry.  The industry loosened the rules, creating a pedestrian product of stated loans options and allowing all borrowers to take this option definitely contributed to the financial meltdown. My experiences tells me the raising of the LTV’s, lowering the credit standards and removing the appraisal requirements were three of the primary areas that allowed for abuse. I can think about many examples of borrowers with the ability and willingness to repay and prove to be a much lower risk than a borrower with a high LTV, high DTI, all gift funds with no housing history.   “Consider several examples. Borrowers that are financially complex with extensive financial statements are asked to provide endless amount of documentation to receive a mortgage, not to mention YTD financials. Would they be willing to pay a little higher rate to avoid the hassle of providing all of the documentation, this would include avoid paying an accountant, disrupt their internal record keeping and stress of follow up questions? Provided they have sufficient reserves (not the three month PITI, I mean real reserves that fits the profile of their income range, prior mortgage history, high credit scores) – why not give them a mortgage? In the past bankers were willing to take the risk knowing the customer’s past record demonstrated their ability to make mortgage payments.   “How about multiple generations contributing to household expenses, saving 25% to put down to purchase a home and unable to secure a mortgage due to the documentation requirements? The original GreenPoint managed this product well, performing its own appraisal and credit check.  The bank received a premium on the rate and the loans performed better than FHA during those times (1990’s).   “Consumers are willing to pay a premium for express service, no waiting in lines, faster delivery and greater access to privileges – airport clubs anyone?  Why is it we are regulated as an industry and not pricing for risk, manage risk appropriately – not opening up to the masses at an LTV of 100% or less and a credit score of 580 or higher – and assessing the borrower’s complete profile before extending a loan? As a lender, I would be willing to provide lower LTV loans to credit qualified borrowers with risk overlays rather than higher LTVs with minimal reserves, one paycheck from a mortgage delinquency and perhaps marginal credit.”

 

 

A surgeon called a plumber to come to his house on Christmas Eve to repair a broken pipe.

When the plumber presented him with the bill the doctor said, “Wow. I’m a surgeon and I can barely afford to pay this bill.”

To which the plumber replied, “Yeah, I couldn’t either when I was a surgeon.”

 

 

Rob

 

(Copyright 2015 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)